Often, when your lender scrutinizes your loan application for a new home or piece of property so finely that it is finally turned down, it can be very distressing. If this happens, you should be able to understand just why such a decision was taken and do what you can to remedy the situation. The cause for rejection given below will help you understand just why it happens to some people.

Causes for rejection:

The appraised value is far too low: Your lender perhaps found the ratio of the loan amount to the sale price or the appraised value of the property to be substantially lower than the purchase price or loan-to-value (LTV) ratio. Or perhaps the LTV is higher than your lender is allowed to approve. Then, perhaps you have applied for 90-95% of the purchase price as the loan amount. A low appraisal will then make your loan request far too large.

If the seller’s price of the property far outstrips the prevailing rates in your locality, you would be best advised to renegotiate the price with him so that it conforms to the prices in the area. It should also be one which your lender would not refuse in order to pass your loan request. If this can’t be done, it might be a better idea to accept a smaller loan amount, and pay the balance from your personal funds.

Insufficient funds: When your lender goes through your financial information and you’re verification of deposit, he will find that you do not have enough funds to make the necessary down payment and cover closing costs. Even if these funds do not come from a loan, a gift could go a long way. Alternatively, you could ask the seller to take back a second mortgage on the property. This would help lower your down payment or get the seller to pay some of the closing costs, perhaps the origination fees. After all this, you could ameliorate the situation by just waiting in the wings, while you begin a savings scheme.

Do you have insufficient income? Lenders will refuse your loan application if they find that the mortgage payment on your property exceeds 28 percent of your monthly gross income. In addition, if your total debt including mortgage payments and other installments exceed 36 per cent, you stand to be refused. The figures are higher for FHA loans. But the situation can improve for you if your credit card record is good and you can prove that you already are carrying a huge household expense including rent or mortgage payments, perhaps your lender will swing his decision in your favor. This is just why you need to make a clean breast of your income and expenses while making an application.

Up to your eyes in debt: Often, lenders don’t reject applications solely because of the amount of debt they carry on their heads. It is also the many credit cards they possess and revolving credit accounts with proof of rising account balances that come close to the limit prescribed. Such information is detrimental if you are out to prove your creditworthiness. To remedy the situation, you will need to pay off as many of your debts as possible and then reapply for a loan.

Poor credit history: What can be more devastating than to have your loan request turned down due to a history of poor debt repayment habits? If your lender sees that you have a history of making late charges often, owing amounts to the bank or insolvency, he’s hardly likely to pass a loan application for purchase of property. Your lender is surely not going to be tolerant of a bad credit record. Even if you have had a low loan-to-value ratios and debt ratios, you cannot wipe out a history of poor credit.

Rejection is not the end of the world: Just because a lender rejects your loan application doesn’t mean you can never own property in all your life. You can take corrective steps to improve your chances of acceptance. But if you work steadfastly at it, you can work a way round your problems. Find out why your loan application was rejected and work towards loan acceptance.

Often, when your lender scrutinizes your loan application for a new home or piece of property so finely that it is finally turned down, it can be very distressing. If this happens, you should be able to understand just why such a decision was taken and do what you can to remedy the situation. The cause for rejection given below will help you understand just why it happens to some people.

Causes for rejection:

The appraised value is far too low: Your lender perhaps found the ratio of the loan amount to the sale price or the appraised value of the property to be substantially lower than the purchase price or loan-to-value (LTV) ratio. Or perhaps the LTV is higher than your lender is allowed to approve. Then, perhaps you have applied for 90-95% of the purchase price as the loan amount. A low appraisal will then make your loan request far too large. 

If the seller’s price of the property far outstrips the prevailing rates in your locality, you would be best advised to renegotiate the price with him so that it conforms to the prices in the area. It should also be one which your lender would not refuse in order to pass your loan request. If this can’t be done, it might be a better idea to accept a smaller loan amount, and pay the balance from your personal funds.

Insufficient funds: When your lender goes through your financial information and you’re verification of deposit, he will find that you do not have enough funds to make the necessary down payment and cover closing costs. Even if these funds do not come from a loan, a gift could go a long way. Alternatively, you could ask the seller to take back a second mortgage on the property. This would help lower your down payment or get the seller to pay some of the closing costs, perhaps the origination fees. After all this, you could ameliorate the situation by just waiting in the wings, while you begin a savings scheme. 

Do you have insufficient income? Lenders will refuse your loan application if they find that the mortgage payment on your property exceeds 28 percent of your monthly gross income. In addition, if your total debt including mortgage payments and other installments exceed 36 per cent, you stand to be refused. The figures are higher for FHA loans. But the situation can improve for you if your credit card record is good and you can prove that you already are carrying a huge household expense including rent or mortgage payments, perhaps your lender will swing his decision in your favor. This is just why you need to make a clean breast of your income and expenses while making an application. 

Up to your eyes in debt: Often, lenders don’t reject applications solely because of the amount of debt they carry on their heads. It is also the many credit cards they possess and revolving credit accounts with proof of rising account balances that come close to the limit prescribed. Such information is detrimental if you are out to prove your creditworthiness. To remedy the situation, you will need to pay off as many of your debts as possible and then reapply for a loan. 

Poor credit history: What can be more devastating than to have your loan request turned down due to a history of poor debt repayment habits? If your lender sees that you have a history of making late charges often, owing amounts to the bank or insolvency, he’s hardly likely to pass a loan application for purchase of property. Your lender is surely not going to be tolerant of a bad credit record. Even if you have had a low loan-to-value ratios and debt ratios, you cannot wipe out a history of poor credit. 

Rejection is not the end of the world: Just because a lender rejects your loan application doesn’t mean you can never own property in all your life. You can take corrective steps to improve your chances of acceptance. But if you work steadfastly at it, you can work a way round your problems. Find out why your loan application was rejected and work towards loan acceptance.

The 5 Percentage Breakdowns

Those looking to secure a loan learn very early how important a credit score really is. It can determine whether or not a lending institution approves your loan application, and your credit score also influences the interest rate offered to you by a bank or other lending company.

A credit score is a number assigned to you based on an analysis of your credit history. All of your credit history information is entered into a computer. The computer analyzes that information and then assigns a number. The major credit ranking agencies do not use the same software so you might be assigned a slightly different number at each of them. Credit scores are sometimes referred to as FICO scores. This is because Fair Isaac Corporation (FICO) developed the software most commonly used to determine credit scores.

What aspects of your credit history matter most when you’re FICO score is calculated? Different factors are assigned different percentages in the calculation of your overall credit scores. Your payment history, amounts owed and the types of credit you have are all factors in your personal FICO score. Here is an approximate percentage breakdown:

Payment History

Things like records of amounts and schedules of payments (including late payments) accounts for 35%. Lending companies see the length of time you’ve been past due as well as the amount of time since you had a past due payment.

Amounts You Owe

Any loans or a debt that you have outstanding is 30% of your score. Lending companies have a chance to see how many accounts you owe money to and what balance you currently owe. They also take a look at your credit lines and for indications that you might currently (or in the recent past) have been overextended.

Length of History

This area accounts for 15%. Lending companies see how long your accounts have been open and how much time has passed since there was activity in your accounts. The longer and better your credit history, the better your scores will be in this area.

Types of Credit

The number and types of accounts you have makes up 10% of your FICO score. You will receive a better score is there is a variety of account types rather than just credit card accounts.

New Credit

This area is also worth 10% of your credit score. Under this heading, lending companies see the number of new credit inquiries you have made and the number of accounts you have opened recently. Banks and lending institutions want to ensure that you are not trying to open a lot of accounts at the same time and overextending yourself and your financial obligations.

Now you might be wondering, what is considered a good credit score? Credit scores usually fall between 350 and 850. The higher your score is the better. The higher your score is, the less of a risk you are perceived to be. Banks and other lending institutions feel they are more likely to get their money back from people with high FICO scores because these kinds of people have a good history of managing and meeting their financial obligations. The less of a risk you appear to be, the more likely you are to have your loan application approved.

Have can you improve your card score? It takes time, of course, but it’s never too late to start practicing proper financial management strategies. Make sure you pay your bills on time and keep your credit card balances low. Also try to avoid opening a lot of new accounts in a short period of time because this can alter the score in the new credit section of your FICO score. Lending institutions are looking for people that are able to successful manage their financial matters so it takes time to make a favorable impression if your current credit report and score are poor.

You also want to take a close look at the information on your credit report and ensure that it is all up-to-date and accurate. If the credit agencies have incorrect information to plug into the computer, then your FICO score may not be correct.

Credit and debt can be difficult for anyone to handle, but you need to remember that it is not only the amount of debt you have that influences your FICO scores, but also the manner in which you manage it.

In the recent past, with the prices of homes on the rise, complemented by falling interest rates and a need to convert one’s accumulated home equity into expendable funds, millions of people have got the opportunity to refinance the mortgage on their residence. Often, this has worked to their advantage since refinancing has resulted in a vastly lower interest rate and lower monthly mortgage payments, thereby letting homeowners spend or save a certain part of their incomes that are no longer repayments to their mortgages.

In order to refinance, homeowners sometimes borrow more than they need to pay off an earlier mortgage and so cover the transaction costs of refinancing, and then liquefy the equity they have put together in their homes. With these funds, they make home improvements, repay older debts and buy goods, services or assets they can’t otherwise afford.

Why you should refinance: First, you need to take a good look at your current interest rate to do your best for your funds. It is well worth refinancing your current mortgage if your new interest rate is over ½% to 5/8% your current interest rate. But if you want to lower your closing costs as far as possible, see that your current rate is at least 1% lower.

How much can refinancing save you? This depends on several factors relating to your present mortgage situation. If your interest rates are low, it can bring in substantial savings to your funds, perhaps even thousands of dollars! And when rates rise, refinancing from a conventional loan to a variable rate loan, you can stand to gain substantially.

Benefits of refinancing: Choosing to refinance a home mortgage is a tough decision and needs careful consideration of one’s costs and the benefits that will accrue from refinancing. You will realize that when interest rates on mortgages fall below the rate on your existing loan, it’s a good idea to refinance. At a time like this, you need to look at the prospective after-tax savings from lower monthly payments if you were to take a lower-rate loan and compare it with the after-tax expenses of refinancing. This would include mortgage fees or points, application and appraisal fees. As the loan is repaid, the savings from your lower interest payments begin to accumulate. As a result, the funds that would have been saved due to refinancing must be discounted at the present rate and compared with the transaction or closing costs.

People usually go in for refinancing to save money, but there are other reasons also, such as:

Reducing your monthly loan installment: If you reduce your monthly mortgage installments, you can end up refinancing your existing loan at a lower rate of interest. This can save you funds in the long run.

Consolidating your debts: Perhaps you prefer to refinance to consolidate your debts (e.g. a student loan or a loan on a credit card) and prefer paying a low-interest loan rather than a high-interest one. Now, you can clear all your outstanding debts and replace them with just one low-cost cheaper monthly payout.

More tax deductions: If you have lower interest rates, it means smaller interest deductions on Schedule A.

Mortgage interest: You are allowed to deduct interest on a debt of up to $1 million incurred to buy your house and one more home. Also deductible is interest on up to $100,000 of home equity loans due to these two residences. If you refinance a mortgage, the interest on this loan is deductible to the limit of old mortgage plus $100,000.

Points: The interest charges you pay up-front or points are really interest that’s pre-paid and must therefore be deducted proportionately during the tenure unless you have purchased or improved your existing principal property.

Also, if you have bought a holiday home or real estate as an investment, points should be deducted proportionately over the loan term. Or, if you have refinanced a mortgage on which you had been reducing points proportionately, you could stand eligible for a tax bonus. Now, you can subtract any part of the points for the mortgage already paid off that you had not yet deducted since the year of refinancing.

You as the buyer or seller will have to appear at a meeting in which all of the final legal details will be handled, this is known as the closing. Others in attendance are the realtor, lender and a closing agent. The meeting usually occurs either at an agent’s office, or at a lending institution such as a bank or mortgage company. The main emphasis is to review all of the paper work, and to sign the different forms for financing, and to transfer title to the new owner. For the buyer and seller knowing what to expect can ease concerns on the process of closing.

Typically the buyer will have a more of a role to play in the process of closing on a house. However, the seller will have an important role to play too. Usually a review of the settlement sheet is presented first for both to sign and agree upon. You will need to be sure about the terms and agreements before you sign. Next the buyer will be required to show proofs of required mortgage insurance, and that all necessary inspections have been completed according to the guidelines of the contract. All parties must be in complete agreement over terms and sign the documents. Once this phase is completed both parties will present a certified check for the entire amount of the closing costs. The lender will present the funds paid to the closing agent, also if there are any funds due they will be submitted at that time to the lending agent.

Depending on the requirements that you agreed to as a buyer, for example your bank or mortgage company may have stipulated that any you will need to set up an escrow account to pay your property taxes, or may be your designated home insurance provider out of this account, this will be efficiently handled at the closing meeting for your new home. Other issues such as the recording of the deed will be discussed. Don’t be surprised if your informed that you don’t have legal claim to the property until it is officially recorded at your local courthouse. It is to be understood that you may not move in until you have legal ownership of a clear title, and this process can take from a few days to over a week. This is why disbursement of funds to anyone involved in the transaction will not be paid until the deed recording is completed.

If you’re the buyer you will need to know what forms you will be required to sign. Take a few moments and write down a check list, and bring along copies of any paper work that you have been required to sign or review. An important document known as the Truth in Lending statement will contain vast amounts of financial information for the buyer. This statement will contain information such as your interest rate for the mortgage, amount of the cash financed, and your monthly payment schedules along with the total amount paid based on the length of your loan. Detailed information will be found in other paper work for the buyer too. The mortgage note and other assigned specifications will spell out in specifics terms such as how and where the note is to be paid, and the institutions right to reclaim their rights to the property. This legal documentation will also explain that you’re to meet other specific requirements, such as paying any necessary insurances and taxes yearly, that is of course if you are allowed to pay this independently, and is not part of an escrow account.

The value and importance of a good realtor is quickly appreciated in the closing meeting. Many of the processes involved are readily explained by a caring and competent professional before the closing ever takes place. Make sure though that you do your part by taking the time to ask any questions that you have with your realtor, and studying if necessary your part of the process, whether you’re the buyer or seller. Home buying and selling can be a pleasant experience for all of those involved without a lot of hassle and grief. Just make sure you approach it with the right attitude and guidance.